Question

3.

Musich Corporation has an activity-based costing system with three activity cost pools--Machining, Setting Up, and Other. The company's overhead costs, which consist of equipment depreciation and indirect labor, have been allocated to the cost pools already and are provided in the table below.

                                                               Activity Cost Pools

	Machining		Setting Up			Other			Total
Equipment depreciation	$	8800		$	47,200		$	23,200		$	79,200
Indirect labor		3600			2600			3800			10,000
Total	$	12,400		$	49,800		$	27,000		$	89,200

Costs in the Machining cost pool are assigned to products based on machine-hours (MHs) and costs in the Setting Up cost pool are assigned to products based on the number of batches. Costs in the Other cost pool are not assigned to products. Data concerning the two products and the company's costs appear below:

	MHs	Batches
Product Z3	5700	600
Product T1	5900	1200
Total	11,600	1800

                                                                                           Product Z3      Product T1

Sales (total)	$	224,800	$	252,500
Direct materials (total)	$	82,500	$	97,000
Direct labor (total)	$	109,400	$	103,700

Required:

Calculate the following:

Machining Activity Rate	$
Setting up Activity Rate	$
Amount of OH applied to product Z3 (round to the nearest dollar)	$
Amount of OH applied to product T1 (round to the nearest dollar)	$
Product Margin – Z3 (round to the nearest dollar)	$
Product Margin – T1 (round to the nearest dollar)	$

Answer 1

Machine Activity rate = Cost in the Machining cost pool / Total machine hours = $12400 / 11600 MHs = $1.07 per MH
Setting up activity pool = Costs in the Setting up cost pool / Total number of batches = $49800 / 1800 batches = $27.67 per batch
Amount of OH applied to product Z3
Machining [5700 MHs * $1.07]	$6,093.00
Setting up [600 batches * $27.67]	$16,600.00
Amount of OH applied to product Z3	$22,693.00
Amount of OH applied to product T1
Machining [5900 MHs * $1.07]	$6,307.00
Setting up [1200 batches * $27.67]	$33,200.00
Amount of OH applied to product T1	$39,507.00
Calculation of product Margin
	Product Z3	Product T1
Sales	$224,800.00	$252,500.00
Less : Costs
- Direct Materials	$82,500.00	$97,000.00
- Direct Labour	$109,400.00	$103,700.00
- Overheads	$22,693.00	$39,507.00
Product Margin	$10,207.00	$12,293.00
Product Margin – Z3	$10,207.00
Product Margin – T1	$12,293.00